Payment off loans takes some time and requires from the debtor not only maximum patience but also the adjustment of his financial behavior. We can add to this matter serious debt overload issue which exists in the United States for quite a long time. In this year, at the very beginning personal debts on credit cards throughout the US exceeded all previous record figures. And today, for every average American, the credit rating level is less than 700 credit points.
We suggest everyone carefully review this context and change your money handling in the right direction, if you are one of these people.
Possible reasons for my low credit rating
You can’t get a loan because of a low credit rating? How to increase your credit rating? Banks often refuse to issue loans due to low credit rating. What does this mean? One of most important questions is how to increase the rating, therefore, its attractiveness as a borrower.
Low credit rating is an indicator that helps banks to understand how safe it is to trust a certain person its money.
A high credit rating means that financial organizations can trust a client because he has always paid his bills before and now his financial position is stable. And low credit rating shows that the risks of non-return are high.
All banks currently use special scoring programs to evaluate borrowers. This is a kind of mathematical formulas that take into account the available information about a person. This is an information and credit history, which indicates financial discipline, and demographic data. Different credit organizations use different formulas but the essence is the same – the lower the rating, the fewer chances for approval of a loan application or even a small loan in the bank.
Rating, sometimes, is reduced in part not only by the fault of the people but due to the fact that the demographic data on the borrower correspond to the social group of people that banks do not consider reliable enough. Relatively speaking, the system “noticed” that in particular region, representatives of such a profession and this age badly return debts. And if you live in this region and belong to the same profession and fall into this age category, than for creditors it is a signal that the likelihood of loan non-repayment is high.
But still, the main reason for the downgrade is a bad credit history. If the borrower has already made delays in paying loans, then the rating will be low. And even if the loan is given, it is at a higher percentage and for a shorter period than a positive borrower.
If the credit rating is lower than 700 points, then this is a very bad indicator for the borrower.
What can cause bad credit history
The main reasons for entering the negative credit history that adversely affects the reputation of the borrower are:
- Non-payment of a loan to the bank. This violation is considered the most severe. If the debt had to be collected by the court, regardless of the results, the probability of a new loan becomes almost zero.
- Regular payments delay for more than a month. The probability of obtaining a loan to the bank, in this case, is very small.
- Delay in regular payments for a period of 5 to 30 days. This violation of financial discipline is considered minor. More serious attention is paid to it in a situation, where delays become permanent and often recur.
Useful tips to clean up damaged credit score
The main and most effective method of correcting a problematic credit history is to close existing debts and to maintain financial discipline when servicing new ones. However, it is first recommended to carefully examine the credit bureau for the presence of errors. Easily available options to clean credit:
Correction of errors and clean up damaged credit score. The easiest way to fix a credit history is to check any errors in information about a borrower. In such a situation, it is necessary to contact the bank that provided the incorrect data in order for it to submit reliable information to the credit bureau.
Use of online services and credit programs. In a situation when the data of a credit history problem is genuine, much more effort and time is required to correct such situation. Today, there are several specialized services and credit programs that offer financial consultancy services aimed at improving the borrower rating.
Repayment of current loans. The presence of unpaid loans is the most serious violation of financial discipline and the most frequent reason why new loans cannot be given. Therefore, it is imperative to close all existing debts. First of all, you should pay off small debts on credit cards, since they assume the highest interest rates and large penalties. The best option is to arrange a loan restructuring with a bank whose client is the borrower. The not less attractive way is to refinance debt on favorable terms in another financial institution.
Improvement with a Credit Card. Today, you can improve your credit history with the help of online regular credit card registration. Many banks, for example, are ready to issue cards even to those borrowers who have a problem with the rating.
An important advantage of all these options is the ability to get your credit clean very quickly. You don’t need to wait long to clean up damaged credit score. Usually, all information becomes available during the first month after you start your work. Besides that, a major advantage of credit score improving with a plastic card is the fact that this method can be used many times. The main thing is to strictly observe the terms of mandatory payments on the card credit limit.